Fulton Financial Earnings Call Insights: Balance Sheet Management and Expense Range Details
Fulton Financial Corp (NASDAQ:FULT) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.
Balance Sheet Management
Frank Schiraldi – Sandler O’Neill & Partners: Just a few questions. First, I wondered if you could talk little bit about balance sheet management here and then wondering if given the asset sensitivity of the balance sheet there is not or there might be more room going forward to look to fund with increased overnight borrowings short-term borrowings to help offset margin pressures?
Charles J. Nugent – SEVP and CFO: In terms of the balance sheet positioning, Frank, I think we are in pretty good position. And from a static GAAP announcement of six months we are 6% asset sensitive, so we feel good about that. And then also when we do the rate shocks, we believe we are in a good position as rates rise I think you are going to see our net interest income increase and our margin also. But we are in a position if we want to borrow more in the federal funds market. I think we were about at the end of March we were borrowing about 725 million around there and we could borrow a lot more that way and we can also borrow from the Federal Home Loan Bank (indiscernible). That’s a constant evaluation of our position, how big our investment portfolio should be, how much are we borrowing and that’s under constant evaluation by our treasury pool.
Frank Schiraldi – Sandler O’Neill & Partners: So, wouldn’t necessarily be an active strategy going forward it’s just something, I guess, under consideration you could always increase those levels. Is that fair?
Charles J. Nugent – SEVP and CFO: We could.
Frank Schiraldi – Sandler O’Neill & Partners: And then I just wondered if you could characterize the loan growth from the quarter, the commercial loan growth in the quarter usage would have played into that a bit, but I am just wondering if you would characterize as maybe more coming into line with the pricing of where the market is or if you are just seeing greater demand?
E. Philip Wenger – Chairman, President and CEO: Frank, this is Phil. I would say it’s a combination. I do think our pricing has come more in line with what’s out in the market, but we are seeing greater demand from existing customers. As we see credits coming into our loan committee every week we went for a long time where there were very little requests, very few requests for equipment, any kind of expansion, increase in lines to fund our receivables and the inventory. And I would say over the last six months, a large percentage of the credits we’re reviewing are asking for increases to fund some sort of expansion whether it’s in short-term working capital assets or in fixed assets. So, I would say a combination.
Frank Schiraldi – Sandler O’Neill & Partners: Then just finally, Charlie, I want to ask on the service charges on deposits and the other service charges and fees that were both down linked quarter and you spoke about them as being partially fees as that partially being seasonal. What are your thoughts on that decline linked quarter is that primarily seasonal or is it just a shift in customer activity?
Charles J. Nugent – SEVP and CFO: Frank, I think it’s a combination of both and the fees were primarily down in the overdraft fee area and it was down I think as Phil mentioned, I might mention too $1.6 million or 14%. It is seasonal, but if you look to the first quarter of last year, we’re down about 500,000 from there. But it seems like it’s not only seasonable, but a lot of change in customer behavior (indiscernible) accounts as much.
E. Philip Wenger – Chairman, President and CEO: As far as the other deposit fees Frank, I would say most of that is seasonal. We tend to have that in the first quarter of every year.
Frank Schiraldi – Sandler O’Neill & Partners: It was a bit lower than the first quarter of last year, but I guess still you would think that much of that quarter-over-quarter drop is seasonality?
Charles J. Nugent – SEVP and CFO: We do think so, yes.
Expense Range Details
Robert Ramsey – FBR: Charlie, I know you gave an expense range next quarter, and I didn’t catch it. Could you give me that number or that range again please?
Charles J. Nugent – SEVP and CFO: Bob, the low would be $112 million and the high would be $115 million. That of course that’s what we expect a lot of those numbers we have can be volatile, so that’s our guidance I guess for next quarter.
Robert Ramsey – FBR: What was sort of the I know you highlighted other expenses were a lot lower this quarter. What kind of push that number down as far as it was, I know there were several sort of items that moved around in expenses?
Charles J. Nugent – SEVP and CFO: The big drop quarter-to-quarter was that prepayment penalty, Bob. That was a big one. The outside service fees that went down, that was down $1.3 million, marketing was down $665,000, operating risk loss related to reserves, mortgages putback was down $861,000, they were the biggest ones.
Robert Ramsey – FBR: I guess what I’m asking there is the drop that went from (18.2 to 14.9) if there was anything notable in that other line item or whether it is a bunch of tiny things?
Charles J. Nugent – SEVP and CFO: I would think it is a bunch of tiny things. And I don’t see anything real big in there.
Robert Ramsey – FBR: And then if I sort of shift over to margin. I know you all gave a range next quarter which suggest maybe a little bit less pressure than you all had this quarter, but not a lot less. As you head into the back half of the year does the pace of compression improve or as long as rates are where they are do you think you are kind of down 5 to 10 bps a quarter?
Charles J. Nugent – SEVP and CFO: I don’t know. It is hard to predict, when you look out. I think we gave prediction of (3.60) for this, I did. And the quarter we were on. Since we have we try to predict the invest yields and the deposit yield it’s easier, but loan yields because of pricing pressure it is quite we were off on that and also we are also off on loan fees they were down unexpectedly. It is hard to predict. And we did projections where we took a very conservative look and it was (3.44) and then we had one that was another projection was (3.50) and a lot of it the difference between the two had a lot to do with what we thought loan growth was going to be and also loan yields are going to be. How much will they (cripple down).
Robert Ramsey – FBR: And then I guess as you sort of folded together. You all had really nice loan growth this quarter, particularly the end of period growth is much better than a lot of other banks we’ve seen report. But with the margin pressure the net interest income was down pretty significantly as you sort of look forward given your growth expectations and your margin sort of sensitivities there, can you grow net interest income this year or do you think you can keep it flat or do you sort of have bias up or down from where we are today?
E. Philip Wenger – Chairman, President and CEO: Bob, let me say couple of things and then I’ll Charlie can add, but when you look linked quarter, the biggest decrease was actually caused into actual net interest income was caused by the fact that there were two less days. So, if there would have been the same amount of days, the decrease would not have been I think 300,000 to 400,000. So, boy, can we grow? Boy, that’s a great challenge that we have and we are going to do our best to if it doesn’t grow to keep it at a lowest decrease we can, but it’s a challenge that we all face out there. We do think we are better off. We are much better off when we look at that on net interest income with our growth within our assets at a little lower yield than we had before. We’re better off with that strategy than we are at a no growth strategy and only 5 basis points drop in margin. So, we are focused on it and we are going to try our best. Charlie, is it fair?
Charles J. Nugent – SEVP and CFO: That’s exactly what I was going to say.
Robert Ramsey – FBR: I appreciate the color.